In accordance with Article 79 of the Charity Law, the income of a charitable organization is eligible for tax benefits. For qualified non-profit organizations, their income (excluding operating income) is tax exempt, according to the Law on Enterprise Income Tax and the Regulations on the Implementation of Law on Enterprise Income Tax.

Based on regulations issued by the state tax department and taxation authorities, the income of charitable organizations shall be subject to two procedures for tax exemption:

First, the charitable organization has to obtain the qualification for tax exemption as a non-profit organization.

Second, the income of the charitable organization has to have been identified as tax-exempt income.

The Circular on Relevant Issues concerning Administration of Identification of Tax-free Qualifications of Non-profit Organizations issued by the Ministry of Finance and the State Administration of Taxation (No. 13 [2018] of Finance and Tax) has provided the specific conditions for obtaining tax-free qualifications for non-profit organizations.

Based on No. 13 (2018) of Finance and Tax, charitable organizations that have obtained tax-free qualifications shall go through the tax exemption formalities with the relevant taxation authority, according to the Measures for the Handling of Matters concerning Preferential Enterprise Income Tax Policies (2015). Qualified non-profit organizations shall be filed on record. After filing, charitable organizations may be exempted from the enterprise income tax while declaring enterprise income.

In accordance with the Regulations for the Implementation of the Enterprise Income Tax Law and No. 13 of Finance and Tax (2018)[1], non-profit organizations shall meet the following conditions for obtaining tax exemption qualification:

The charitable organization must be established or registered in accordance with relevant national laws and regulations;

Engaged in public welfare or non-profit activities;

Income generated after expenditures shall be used for approved public welfare or non-profit projects as provided in the Articles of Association;

The property and interest accrued shall not be used for distribution;

As approved during registration or prescribed in its by-law, after the organization is de-registered, any remaining assets shall be used for charitable or non-profit purposes or donated through registration authorities to other organizations that have the same nature as those of the de-registered organization; a public announcement will follow;

The donors shall not retain or enjoy any right of the assets donated to the organization. The donor means any legal person, natural person, or other organization except the people’s government and its departments;

Expenditures on salaries and welfare for staff shall be controlled within the prescribed percentage. The organization shall not distribute its assets in any distorted form; the average salaries for the staff may not exceed twice the average salaries of organizations with the same nature or in the same industry in the region at or above the district or county level where the tax was registered previously;

The taxable income obtained, along with the relevant costs, expenses, and losses shall be calculated respectively against the tax-exempted income.

C. Term: The valid term for non-profit organizations qualified for tax preference shall be five years. Charitable organizations shall apply for review within three months prior to expiration. The qualification of any charitable organization that fails to file the review application or fails to pass the review for tax-exemption benefits shall become null and void automatically after expiration[3].

D. Review: When any relevant department finds that a non-profit organization enjoying tax benefits fails to satisfy the tax exemption conditions as provided in the Circular, the department shall propose to the finance and taxation authorities responsible for checking and approving the tax-exemption qualifications to make a review. Any charitable organization that fails to pass the review will not be eligible for tax benefits that year.

E. Circumstances for cancelling the tax-exemption qualifications of non-profit organizations[4]

Based on Article 1 of No. 13 (2018) of Finance and Tax, any non-profit organization enjoying tax benefits shall be revoked of its qualification for any of the following reasons:

The registration authority finds during the subsequent administration that the non-profit organization failed to meet the relevant laws, regulations and national policies;

The non-profit organization provides false information during its application for identification;

The tax credit is rated class C or D by the taxation authority;

The non-profit organization transfers, conceals, or distributes its properties in distorted form by related or non-related transactions and service activities;

The non-profit organization has been listed as an illegal or dishonest organization by the registration authority;

The non-profit organization is engaged in illegal political activities.

The finance and taxation authorities will not accept the application of any non-profit organization being deprived of tax benefit qualifications due to the circumstances above within one year of the revocation. The finance and taxation authorities will no longer accept the identification application of any non-profit organization being deprived of tax benefit qualification due to the circumstances as described in item 6 (vi.) above.

Any non-profit organization being deprived of tax benefit qualifications shall pay tax liabilities; any such organization that fails to pay taxes shall be recovered by the taxation authority from the year when the organization had been deprived of their qualifications.

(2) Treatment of the Tax-Exempted Income of Charitable Organizations

A. What revenue shall be regarded as tax-exempted income?

In accordance with the Circular on Enterprise Income Tax Exempted Revenue of Non-profit Organizations, issued by the Ministry of Finance and the State Administration of Taxation (No. 122 (2009) of Finance and Tax), the following revenue shall be regarded as tax-exempted income:

Income from the receipt of donations by other companies or individuals;

Any income from government subsidies besides tax-free income, excluding the income gained from services purchased by the government;

Membership fees charged subject to the regulations of civil affairs and financial departments above the provincial level (the funds and membership fees charged by social organizations and social service organizations have no such tax-exempted status)

Tax-free income and the income from the interest accrued on bank deposits;

Any other revenue provided by the Ministry of Finance and the State Administration of Taxation.

For charitable organizations, the main tax-exempted income is donation revenue and membership fees (the latter pertaining only to social organizations).

B. Specific process for tax-exempted income declaration

In accordance with the Measures for the Handling of Matters concerning Preferential Enterprise Income Tax Policies, any enterprise that has income during the year shall submit the Record-Filing Table on Preferential Items on Enterprise Income Tax (Record-Filing Table) to the taxation authority; in addition, the Record-Filing Table, as well as any documents on the qualifications of non-profit organizations or relevant certifications (subject to the Measures for the Handling of Matters concerning Preferential Enterprise Income Tax Policies) must be submitted.

Record-filing date: Charitable organization shall file no later than the declaration of their final settlement and payment of annual taxes. Relevant items shall enjoy the preference declared at the time of prepayment.

Reserved materials for review: In accordance with Measures for the Handling of Matters concerning Preferential Enterprise Income Tax Policies, charitable organizations shall properly keep the following materials for review:

Valid identification of the qualifications of the charitable organization or any other relevant certificates;

The examination conclusions issued by the registration authority on the final year of settlement and payment (newly incorporated non-profit organizations are not required to submit);

The statement on the separate calculations of taxable and tax-free income and their respective costs, expenses, and losses;

Statement on obtaining tax-exempted income.

The term for keeping materials for review shall be 10 years after enjoying the preferential items, while the term for keeping preferential items when there is a difference between the taxation regulations and the accounting treatment shall be 10 years.

As for the donation revenue, charitable organizations shall issue donation receipts. When any charitable organization has no donation receipts or fails to issue donation receipts, the taxation authority will not likely regard such income as donation income.

1.2 Tax Benefits for Donors

In accordance with Article 80 of the Charity Law, natural persons, legal persons, or other organizations that donate property for charitable activities are eligible for tax benefits. After the enactment of the Charity Law, the original provisions are to be followed since there are no new tax benefits for donors; therefore, the following will serve mainly to introduce the existing policies on tax benefits granted to donors.

Articles 24 and 25 of the Law on the Donations for Public Welfare state that companies and other enterprises that have donated assets to public welfare projects may enjoy preferential treatment concerning enterprise income tax. Natural persons as well as individual businesses that have donated assets to public welfare projects can enjoy preferential treatment concerning personal income tax. The specific regulations shall be represented in the relevant existing tax laws.

Article 9 of the Enterprise Income Tax Law provides that “expenditures in the form of charitable donations and gifts within 12% of the gross annual profit by an enterprise may be deducted when computing the taxable amount of income. The expenditures of an enterprise exceeding 12% of its gross annual profit may be deducted within three years after carrying forward.” Article 51 of the Regulations for the Implementation of the Enterprise Income Tax Law states that charitable donation expenditures shall refer, as stated in Article 9 of the Corporate Income Tax Law, to donations made by an enterprise for charity, which must be in accordance with the Law of the People's Republic of China on Donation for Charitable Projects.

Article 6 (2) of the Individual Income Tax Law provides that “the taxes on donations to educational and other public projects by individuals shall be deducted from the taxable income subject to the relevant regulations of State Council.” Article 24 of Regulations for the Implementation of the Individual Income Tax Law states, in reference to Article 6 (2) of the Tax Law, that "individual income donated to educational and other public welfare projects" refers to donations by individuals to those and other areas suffering from serious natural disasters or poverty. The portion of donations not in excess of 30% of the amount of taxable income declared may be deducted from the donor’s amount of taxable income.

Based on these laws, for a donation to receive tax benefits, it shall be given to a social organization. In other words, the method is to first obtain “the qualifications for pre-tax deductions on public donations” (tax credit qualifications) by the social organization. Then enterprises or individuals shall obtain tax benefits due for donations with tax credit qualifications.

In accordance with Article 52 of the Regulations for the Implementation of the Enterprise Income Tax Law, charitable organizations, as stated in Article 51 of the Implementation Regulations, refer to social organizations such as foundations. It also refers to organizations that fulfil all of the following conditions:

It was established with the status of a legal person;

It has a public welfare and non-profit purpose;

The assets and appreciation are owned by the legal person;

Earnings and surplus from operations are utilized for projects in line with the objectives of the legal person;

Upon termination, any assets remaining shall not belong to any individual or profit-making organization;

It is not engaged in activities that are not related to the objective of the organization;

It possesses a financial and accounting system;

Donors are not involved in the distribution of the organization’s properties;

Other conditions jointly prescribed by the finance and tax departments of the State Council and the registration department of the Ministry of Civil Affairs of the State Council.

In accordance with the Regulations for the Implementation of the Enterprise Income Tax Law, the Circular on Relevant Issues concerning Pre-tax Deductions for Public Donations (issued by the Ministry of Finance, the State Administration of Taxation, and the Ministry of Civil Affairs [No. 166 [2018] of Finance and Tax]), the Supplemental Circular on Relevant Issues concerning Pre-tax Deductions for Public Donations (issued by the Ministry of Finance, State Administration of Taxation, and Ministry of Civil Affairs [No. 45 [2018] of Finance and Tax]), the Circular on Relevant Adjustment Issues concerning Qualification Determination and Approval on Pre-tax Deductions for Public Donations (issued by the Ministry of Finance and the State Administration of Taxation and Ministry of Civil Affairs [No. 41 {2015}]) of Finance and Tax, the specific requirements and procedures for applying for tax-credit qualifications are described.

Based on No. 166 (2018) of Finance and Tax, “public welfare organizations” for enterprise donations and “social groups” for individual donations refer to organizations such as foundations or charitable organizations registered by the civil affairs authority which meet the following conditions:

Satisfying the conditions as provided in Article 52 (Items [1] to [8]) of the Regulations for the Implementation of the Enterprise Income Tax Law;

No administrative fine has been imposed within three years of application;

The foundation has been registered with the Civil Affairs Department for three or more years, has passed the annual examinations for two successive years prior to application or has passed the latest annual examination with a rating at or above 3A. The foundation has been registered with the Civil Affairs Department for less than three years but more than one year, and has passed the latest annual examination with a rating at or above 3A. The foundation has been registered with the Civil Affairs Department for less than one year and meets the conditions of items (I) and (II) in this article.

Public welfare organizations (excluding foundations) registered with the Civil Affairs Department for more than three years, with net assets being no less than the registered amount on activity funds; they must also have passed the annual examination for two successive years prior to application or passed the latest annual examination with a rating at or above 3A. Public welfare organizations whose expenditure on public welfare activities is equal to or less than 70% of the gross revenue for three successive years prior to the application and whose expenditure on public welfare activities in the current year is equal to or greater than 50% of their total expenditures.

The aforementioned annual examination refers to the Civil Affairs Department’s annual review of foundations and public welfare organizations (excluding foundations) and draws conclusions from the data. The rating level of social organizations at or above 3A refers to the stipulation that social organizations shall be rated at 3A, 4A, and 5A during their assessments.

Based on the aforementioned regulations, only qualifying foundations and social organizations have the right to apply for pre-tax deduction qualifications; additionally, the rating level of social organizations and the result of the annual examination shall be the guiding reference for grading pre-tax deduction qualifications. Private non-enterprise units shall not be eligible for such application.

No. 141 (2015) of Finance and Tax cancelled the procedure on report submissions for tax-credit qualification applications, as provided in No. 160 (2008); instead, the finance authority, taxation authority, and Civil Affairs Department shall confirm the pre-tax deduction qualifications and announce the name list in the form of an announcement. The specific procedure on determining tax-credit qualification shall be as follows:

Social organizations established by the Ministry of Civil Affairs shall be jointly confirmed by the Ministry of Civil Affairs, Ministry of Finance, and State Administration of Taxation at the time of registration; social organizations that conform with public social welfare association conditions shall be determined to be qualified for the pre-tax deduction benefits by the announcement of the Ministry of Civil Affairs with the Ministry of Finance and the State Administration of Taxation.

Social organizations established by the Ministry of Civil Affairs and already in operation shall have their public welfare donation pre-tax deduction qualifications determined by an announcement by the Ministry of Civil Affairs, Ministry of Finance and State Administration of Taxation and the results of their annual examination and assessment.

Social organizations registered with the Civil Affairs Department at or under the provincial level shall be subject to Items (I) and (II) in this article.

Based on the regulations above, the finance authority, in cooperation with the state taxation authority and the Civil Affairs Department, jointly confirmed and released an announcement (instead of creating an application form) on tax credit qualifications for charitable organizations. Some areas may require social organizations to submit the relevant materials found in No. 160 (2008) of Finance and Tax.

(3) Term

The finance authority, in cooperation with the state taxation authority and Civil Affairs Department, shall release an announcement on tax credit qualifications each year.

Public welfare organizations with pre-tax deduction qualifications shall be confirmed in the name list jointly released by Ministry of Finance, State Administration of Tax, and Ministry of Civil Affairs, as well as their counterparts in each province, autonomous region, and city. The name list shall include social welfare organizations that continue to be eligible for pre-tax deduction qualifications and all social organizations that are newly eligible for such qualifications[6].

Based on No.160 (2008) of Finance and Tax, public welfare organizations in any of the following circumstances shall be disqualified for pre-tax deductions:

Failure to pass the annual examination or with a rating lower than 3A in the latest social organization assessment;

Falsifying the application for pre-tax deduction qualifications;

Committing, being complicit in, and/or facilitating tax evasion;

Committing activities which violate the Articles of Association, or accepting and using donations in a way other than that provided in the Articles of Association;

Being subject to administrative punishment.

Public welfare organizations disqualified for pre-tax deductions may not apply again for one year (if in violation of (a) above); they may not apply for pre-tax deduction for three years (if in violation of (b), (c), (d), and (e) above).

In the circumstances as stated in (c) and (d), donation income and other revenue shall be subject to additional enterprise income tax requirements.

(5) Process for Enterprises and Individuals to Enjoy Tax Benefits for Donations

Concerning the public welfare donation expenditures of public welfare organizations, enterprises and individuals shall provide the receipts printed by the financial department at or above the provincial level and sealed by the institution accepting the donation, or the receipt slip of the General Payment on Non-tax Income also sealed by the institution accepting the donation—such public welfare donation expenditures shall be deducted before tax[8].

The taxation authorities shall go through the list of names jointly released by the financial department, taxation authority, and Civil Affairs Department. Wherever public welfare organizations accepting donations are on the list, their public welfare donation expenditures may be deducted before tax.

Donations to charitable organizations by enterprises or individuals may enjoy tax benefits only after satisfying two conditions. First, a charitable organization must be eligible for a tax credit. Second, an enterprise or individual must have public welfare donation receipts with the seal of the organizations they donated to.

The amount of donations that may be deducted before tax is determined by computing the enterprise income tax at the time of the final settlement and payment by the enterprise. The enterprise income tax may be computed by year and repaid by month or quarter. Individuals enjoying the tax benefits for donations are limited only to deductions for current taxable income. The amount of donations is the current taxable income whenever the tax declaration was made. Where there is a balance after the current deduction, it may not be carried forward to other taxable income or the taxable income for subsequent tax declaration periods, nor can it be used for recovering the taxable income for prior tax declaration periods[9]. The time to pay the individual income tax and the individual tax rate may be different depending on the amount of taxable income. For instance, the individual income tax for salaries may be paid by month and calculated at the progressive tax rate. The occasional individual income shall still pay the income tax.

(6) Computing the Tax Benefits Enjoyed by Enterprises and Individuals for Donations

In accordance with the Enterprise Income Tax Law and the Individual Income Tax Law, expenditures in the form of charitable donations and gifts within 12% of the gross annual profit of an enterprise may be deducted when computing taxable income. Charitable expenditures and gifts within 30% of the income tax payable by an individual may be deducted when computing taxable income.

The Circular on Relevant Policies concerning Pre-tax Carrying Forward and Deduction of Enterprise Income Taxes for Public-welfare Donations (No. 15 [2018] of Finance and Tax), issued on Feb. 11, 2018, defined the Enterprise Income Law and Regulations for the Implementation of the Enterprise Income Tax Law and stated that expenditures in the form of charitable donations and gifts within 12% of the gross annual profit of an enterprise are able to be deducted when computing taxable income. Expenditures exceeding 12% of the gross annual profit of an enterprise may be deducted within three years after carrying forward. In accordance with the Regulations for the Implementation of the Enterprise Income Tax Law, the formula to calculate the enterprise income tax payable is: income tax payable = total annual revenue – untaxed income - income exempted tax – deductions – prior year deficiency to be compensated. Expenditure in the form of charitable donations and gifts within 12% of the gross annual profit may be deducted, and the expenditure exceeding 12% of the gross annual profit of an enterprise may be deducted within three years after carrying forward. For example: a company’s total profit in 2018 is RMB 1,000,000; it donated RMB 100,000 to a charitable organization with pre-tax deduction qualifications (less than 12% of RMB 1,000,000) and obtained the donation receipts. The company may deduct RMB 100,000 while calculating their enterprise income tax payable. If the company donated RMB 200,000 to a charitable organization with pre-tax deduction qualifications (more than 12% of RMB 1,000,000) and obtained donation receipts, a company may deduct RMB 800,000 after deducting RMB 120,000.

Charitable expenditures and gifts within 30% of the income tax payable by an individual may be deducted when computing the taxable amount of income.

The formula to calculate the individual income tax is: individual income tax = income tax payable × the relevant tax rate. However, as there is a different tax rate for each person, the deduction of individual income tax is rather complicated. The formula to calculate the deduction for personal donation expenditures is: individual income tax = (income tax payable – donation expenditure) × the relevant tax rate. For this formula, the donation expenditure should not be higher than 30% of the income tax payable.

1.3 Donation Receipts

Donation receipts play a very important role in the tax exemption and tax credit qualification of non-profit charitable institutions and organizations. The Interim Measures on the Administration of Use of Receipts on Donation to Public Welfare Projects, issued in 2010, established the norm of using donation receipts for public welfare projects. The people’s government and its departments, public-welfare institutions, public-welfare social groups, and other public-welfare organizations shall accept and use donations and property for disaster relief, poverty relief, support and assistance for the physically disabled, educational, scientific, cultural, and sport-related projects, environmental protection, public health-related projects, and social public facility construction. This work is tracked by the provision of donation receipts for public welfare projects to natural persons, legal persons, and other donating organizations. The issuance of such provisions enables social organizations to use them to manage their work. The Administration on the Use of the Invoice of Donations for Public Welfare promotes the sound development of social public welfare projects.

However, there are still practical difficulties for social organizations applying for such invoices. Some social organizations accepting donations are unable to apply for the invoice. At present, public welfare organizations, (according to No. 160 (2008) of Finance and Tax, and social organizations with pre-tax deduction qualifications may apply for the invoice; nevertheless, such organizations are only a small percentage of the total. As for the other public welfare organizations, since there is a clear definition concerning the scope of the receipts, a large number of private non-enterprise units and social organizations are unable to accept and issue them. Such organizations are the majority among the total amount in China[10].

The Circular from the Ministry of Finance and Ministry of Civil Affairs on Further Clarifying the Relevant Issues on the Application of Public-welfare Social Organizations for Invoice of Donation for Public Welfare (No. 7 (2016) of Finance and Tax), has defined that only social groups, foundations and private non-enterprise units (public welfare organizations) applying for donation receipts may apply for an invoice for donations to the relevant financial department, in accordance with the Interim Measures on the Administration of Use of Invoice of Donation for Public Welfare.

(1) Applying Subjects

No. 7 (2016) of Finance and Tax states that private non-enterprise units, social groups, and foundations may apply for donation receipts.

For first-time applicants for an invoice for donations, public welfare organizations shall apply for the Financial Instrument Application (Purchase) Certificate and submit the application letter, registration certificate issued by Ministry of Civil Affairs, original and duplicate copies of the certificate of the organizational code, Articles of Association (clearly stating the content of public welfare projects), and any other materials as requested by the financial department. The financial department shall, in accordance with the Measures on Administration of Financial Receipts and Interim Measures on the Administration of Use of Receipts on Donation to Public Welfare projects, conduct a review of application materials submitted by public welfare organizations, approve the applications in conformity with the administration of donation receipts of public welfare projects, handle the Financial Instrument Application (Purchase) Certificate, and issue the donation receipts accordingly.

Whenever reissuing donation receipts, public welfare organizations shall show the Financial Instrument Application (Purchase) Certificate and submit previous copies of the invoice for donations, including the number of copies, starting and ending number, number of used copies, number of cancelled copies, charging amount, and instrument stubs. The financial department shall, after verifying and approving the content, check and cancel the instrument stub and continue to issue the invoice.

Based on these regulations, the financial department shall be liable for reviewing the Financial Instrument Application (Purchase) Certificate and issuing donation receipts. The applicant is required to submit an application letter, registration certificate issued by the Ministry of Civil Affairs, all original and duplicate copies of the certificate of the organizational code, and the Articles of Association. Public welfare organizations and foundations are to directly submit the abovementioned materials to the financial department and receive donation receipts; however, as the relevant provisions on private non-enterprise units have not been implemented for very long, pre-examination is required in many regions.

1.4 Tax Benefits for the Beneficiaries of Charitable Donations

In accordance with Article 81 of the Charity Law, beneficiaries receiving charitable donations are eligible for tax benefits. Moreover, Articles 4 and 5 of the Individual Income Tax Law provide that individual income tax on the income of the disabled, the unsupported, and the aged may be reduced. Article 26 of Regulations on Fund Administration states that beneficiaries may enjoy preferential taxation treatment.

The foregoing provisions are only applicable to certain groups but have nonetheless confirmed that the beneficiaries of charitable activities are eligible for tax benefits.

The operational norms of charitable service objects and the tax benefits for beneficiaries are represented in the donation of funds and properties accepted by companies and individuals through charitable organizations in disaster areas (which are exempted from income tax for post-disaster recovery). However, except for the foregoing regulations, there are no other regulations on the tax benefits for the beneficiaries; therefore, the other organizations are still required to pay enterprise income tax (except those organizations enjoying tax exemption qualifications and other tax benefits). Individuals receiving donations are required to withhold the individual income tax paid by the donors.

(1) Charitable organizations satisfying the Regulations for the Implementation of the Enterprise Income Tax Law and No. 13 (2018) of Finance and Tax should prepare to submit the following materials:

The application report (generally, the taxation authority in each province or city shall provide the application table as a template);

The Articles of Association of the charitable organization;

A copy of the non-profit organization’s registration certificate;

Details on funding sources and utilization, public welfare activities, and non-profit seeking activities in the prior year;

Specific reporting on the salaries and wages of the prior year, including any remuneration, the overall average salaries and wages of staff, proportion of salaries and welfare in total expenditure, information on salaries and wages on key employees (at least including the top ten earning employees);

The financial statements and audit report for the prior accounting year verified by a qualified intermediary agency;

Materials on the development of the non-profit undertakings of public institutions, social groups, foundations, social service institutions, religious institutions and religious colleges in conformity with the relevant laws, regulations, and national policies in the prior year;

Any other materials as required by the financial department and taxation authority.

The prior No. 13 (2014) of Finance and Tax did not require newly incorporated charitable organizations to submit these materials. Newly incorporated charitable organizations are unable to submit all materials during the first year; therefore, different places have adopted different methods. Among these, Beijing requires that such newly incorporated charitable organizations apply in the following year. In accordance with the Finance Bureau of Beijing Municipality, State Taxation Bureau of Beijing Municipality, Local Taxation Bureau of Beijing Municipality Forwarding Circular of Ministry of Finance, and State Administration of Taxation on Administration of Tax-exemption Qualification Identification of Non-profit Organizations (No. 446 [2014] of Beijing Finance and Tax), newly incorporated charitable organizations meeting tax-exemption qualification conditions may file an application in the year subsequent to the year of incorporation.

In Shanghai, the capital verification report on registered capital can be used instead of materials that cannot be applied during the first year. In accordance with the Finance Bureau of Shanghai Municipality, State Taxation Bureau of Shanghai Municipality, Local Taxation Bureau of Shanghai Municipality Forwarding Circular of Ministry of Finance, and State Administration of Taxation on Administration of Tax-Exemption Qualification Identification of Non-Profit Organizations (No. 472 (2014) of Shanghai Finance and Tax), newly incorporated charitable organizations that are unable to submit the required materials in the first year[12] may submit a capital verification report on the initial funds.

Nevertheless, No. 13 (2018) of Finance and Tax has expressly provided how the newly incorporated charitable organizations shall submit materials. Non-profit organizations newly incorporated or registered are required to submit materials as provided in items (a) through (c) and materials concerning the year of application as provided in items (d) and (e); however, they are not required to provide the materials as provided in items (f) and (g). Therefore, the organizations shall, on the completion of incorporation, communicate with the financial department to learn the relevant local regulations.

(2) Applying Department

Based on No. 13 (2018) of Finance and Tax, the applying department shall be classified into the following categories based on the different registry of charitable organizations: (1) Non-profit organizations incorporated or registered with the approval of the registration authority at or above the provincial level shall file the tax exemption qualification application to the local provincial taxation authority after meeting the relevant conditions; (2) Non-profit organizations incorporated or registered with the approval of the registration authority at or above the municipal (district) or county level shall file the tax exemption qualification application to the local taxation authority.

Similarly, Beijing has provided that charitable organizations submit the application materials for tax exemption qualifications to the state taxation authority and local taxation authority to which their enterprise income tax should be paid. To be specific, “the non-profit organizations established or incorporated by the registration authority at the municipal level and whose enterprise income tax is imposed by the state taxation authority, should file their tax exemption qualification applications with the State Taxation Bureau of Beijing Municipality; where the enterprise income tax is imposed by the local taxation authority, non-profit organizations should file their tax exemption qualification applications with the Local Taxation Bureau of Beijing Municipality. Non-profit organizations established or incorporated by the registration authority at the district (county) level and with the enterprise income tax imposed by the state taxation authority at the district (county) level, should file their tax exemption qualification applications with the state taxation authority at the district (county) level; where the enterprise income tax is imposed by the local taxation authority, non-profit organizations should file their tax exemption qualification applications to the local taxation bureau at the district (county) level.”

Based on No. 472 (2014) of the Shanghai Finance and Tax, in Shanghai, all charitable organizations are required to submit the materials to their taxation authority to distinguish “the charitable organizations incorporated or registered with the approval of the registration authority at or above the municipal level” from “the charitable organizations incorporated or registered with the approval of the registration authority at or above the district (county) level”. However, the examination and approval process for charitable organizations above the municipal level is as follows: “after being verified by the competent taxation authority, the units meeting the tax exemption qualifications for non-profit organizations after preliminary examination shall report to the municipal state taxation bureau and local taxation bureau in writing, after which the municipal taxation bureau and municipal financial bureau shall perform their verification and confirmation”; the examination and approval process for charitable organizations at the district or county level is as follows: “after the taxation authority has performed its examination with the financial bureau at the district or county level, the financial bureau shall report their findings to the competent taxation authority. The competent taxation authority and the financial bureau at the district or county level shall copy the approved name list to the municipal taxation bureau and municipal financial bureau.”

(3) Term

The tax benefit qualifications for non-profit organizations shall be valid for five years. Charitable organizations shall file the review application within six months after expiration. If any charitable organization fails to file the review application or fails to pass the review, its qualification for tax benefits shall become null and void automatically.

In accordance with the Measures for the Handling of Matters Concerning Preferential Enterprise Income Tax Policies, where there is exempted income in the current year, the relevant organization shall submit a filing form for Enterprise Income Tax Preferences (filing form) to the taxation authority and submit the relevant materials.

The materials required to be submitted include a filing form and the qualification identification receipts of non-profit organizations or any relevant certificates.

Time for filing: Charitable organizations are required to file no later than their annual final settlement and payment; preferential items shall be subject to the tax benefit at the time of advance payment.

Materials reserved for examination: In accordance with Measures for the Handling of the Matters Concerning Preferential Enterprise Income Tax Policies, charitable organizations shall keep the following materials reserved for examination:

Qualification receipts of non-profit organizations or other relevant certificates;

The examination conclusions issued by the registration authority on the year of final settlement and payment (newly incorporated non-profit organizations are not required to submit);

A statement on the separate calculation of taxable and tax-free income and their respective costs, expenses, and losses.

Statement on obtaining the tax-exempted income.

The term for keeping materials for review shall be 10 years after enjoying the preferential items; and the term for keeping the preferential items where there is difference between the taxation regulations and the accounting treatment shall be 10 years.

Charitable organizations shall issue donation receipts for donation revenue. If a charitable organization has no donation receipts or fails to issue donation receipts, the taxation authority will not likely regard such income as donation income.

(4) Generation of Tax-exempted Income

In accordance with the Circular on Enterprise Income Tax Exempted Revenue of Non-profit Organizations issued by the Ministry of Finance and State Administration of Taxation (No. 122 [2009] of Finance and Tax), the following revenue sources shall be regarded as tax-exempted income:

Income for the receipt of donations by other companies or individuals;

Any other income from government subsidies besides tax-free income, excluding any income from services purchased by the government;

Membership fees charged subject to the regulations of the Civil Affairs Department and financial departments above the provincial level (the membership fees and funds charged by social organization and social service organizations have no such tax-exempted income)

Tax-free income and income from the interest accrued on bank deposits;

Any other revenue provided by the Ministry of Finance and the State Administration of Taxation.

For charitable organizations, the main tax-exemptions will be for donation revenue and the membership fees of social organizations.

It is necessary to declare enterprise income taxes in cases where tax-exempted income is generated while paying the enterprise income tax.

2.2 Application for Qualification for Pre-tax Deduction of Public Welfare Donation (hereinafter referred to as “tax credit qualification”) and Pre-tax Deduction

Based on No. 166 (2018) of Finance and Tax, “public welfare social organizations” for enterprise donations and “social groups” for individual donations refer to public welfare organizations such as foundations or charitable organizations registered with the civil affairs authorities who meet the following conditions in accordance with the Regulations on Fund Administration and Regulations for Registration and Management of Social Association as released by the State Council:

Satisfying the conditions as provided in Article 52 Item (1) to (8) of Regulations for the Implementation of the Enterprise Income Tax Law;

No administrative fine has been imposed within three years prior to application;

Foundations registered by the Civil Affairs Department for three or more years shall have passed their annual examinations for two successive years prior to application or will have passed the latest annual examination with a rating at or above 3A. Foundations registered with the Civil Affairs Department for less than three years but more than one year shall have passed the latest annual examination and must be rated at or above 3A. Foundations registered with the Civil Affairs Department for less than one year shall meet the conditions of items (I) and (II) in this article.

Public welfare organizations (excluding foundations) shall be registered in the Civil Affairs Department for more than three years, have their net assets no less than the registered amount on activity funds, have passed the annual examinations for two successive years prior to application or have passed the latest annual examination with a rating at or above 3A during. Public welfare organization’s expenditure on public welfare activities must be equal to or less than 70% of their total gross avenue for three successive years prior to the application, and such expenditures in the current year must be equal to or more than 50% of the total expenditure.

Passing the annual examination refers to the Civil Affairs Department’s examination of foundations and other public welfare organizations and their drawing positive conclusions from this annual review. The rating level of social organizations at or above 3A is part of the 3A, 4A, and 5A rating system used during social organization assessments.

Only foundations and social groups that have met the requisite conditions have the right to apply for pre-tax deduction qualifications. The rating level of social organizations and the result of their annual examination is the most important reference for grading pre-tax deduction qualifications.

(2) Application Process

The specific procedure for tax credit qualifications is as follows:

The social organizations established by the Ministry of Civil Affairs shall be jointly confirmed by the Ministry of Civil Affairs, Ministry of Finance, and State Administration of Taxation at the time of registration; as for social organizations in conformity with the public welfare association conditions, the Ministry of Civil Affairs, Ministry of Finance, and State Administration of Taxation shall release a joint announcement affirming their pre-tax deduction qualifications.

As for those social organizations established by the Ministry of Civil Affairs and already in operation, the Ministry of Civil Affairs, Ministry of Finance, and State Administration of Taxation shall release a joint announcement affirming their pre-tax deduction qualifications based on the public welfare activities conducted by social organizations and their annual examination and assessment.

Social organizations registered with the Civil Affairs Department at or under the provincial level shall be subject to items 1 (I) and 2 (II) in this article.

Based on the regulations above, the finance authority, in cooperation with the state taxation authority and Civil Affairs Department, shall announce the tax credit qualifications for charitable organizations instead of drafting a physical application. In practice, some areas may require social organizations to submit materials in accordance with No. 160 (2008) of Finance and Tax.

(3) Announcement

The financial department, state taxation authority, and Civil Affairs Department shall announce on the tax credit qualifications for the current year.

(4) Conditions for Tax Credit Disqualification

Based on No. 160 (2008) of Finance and Tax, all public welfare organizations in any of the following circumstances shall be disqualified for pre-tax deductions:

Failure to pass the annual examination or having a rating lower than 3A in the latest social organization assessment;

Falsifying the application for pre-tax deduction qualifications.

Committing tax evasion or helping others commit tax evasion;

Committing activities in violation of the Articles of Association, or using an accepted donation for purposes other than those provided in the Articles of Association;

Being subject to administration punishment.

The public welfare social organizations disqualified for pre-tax deductions may not apply for pre-tax deduction qualifications within one year if they fall into any of the circumstances stated in (a), and may not apply for pre-tax deduction qualifications within three years in cases where they fall into the circumstances stated in (b), (c), (d), and (e).

In circumstances (c) and (d), donation income and other revenue shall be subject to additional enterprise income taxes.

(5) Process for the Enterprises and Individuals Enjoying Tax Benefits for Donation

As for public welfare donation expenditures going to public welfare organizations, the enterprises or individuals incurring them shall provide public welfare donation receipts printed by the financial department at or above the provincial level and sealed by the institution accepting the donation, or the receipt slip of the General Payment on Non-tax Income sealed by the institution accepting donations. Such public welfare donation expenditures shall be deducted before tax.

As for public welfare donation expenditures related to public welfare organizations, the taxation authority shall go through the name list released by the financial department, taxation authority, and Civil Affairs Department. Where public welfare organizations accepting donation are in the list, the donation expenditures incurred by the enterprise or individuals may be deducted before tax.

Therefore, donations to charitable organizations by enterprises or individuals may enjoy tax benefits only after satisfying two conditions: the charitable organization must be eligible for tax credits and the enterprise or individual must have public welfare donation receipts with the seal of the charitable organization.

At the same time, in accordance with Enterprise Income Tax Law and Individual Income Tax Law, expenditures in the form of charitable donations and gifts within 12% of the gross annual profit of an enterprise may be deducted when computing the taxable amount of income. Charitable and gift expenditures within 30% of the income tax payable by an individual may be deducted when computing the taxable amount of income. The Ministry of Finance and the State Administration of Taxation clarified that donations by an enterprise or individual shall be deducted before paying the enterprise income tax and individual income tax.

2.3 Donation Receipts

Application process: While applying for an invoice for donations to public welfare projects for the first time, public welfare organizations shall first apply for the Financial Instrument Application (Purchase) Certificate and submit the application letter, registration certificate issued by Ministry of Civil Affairs, original and duplicate of copies of the certificate of the organizational code, Articles of Association (clearly stating the content on public welfare projects), and any other materials as requested by the finance department. The finance department shall, in accordance with the Measures on Administration of Financial Receipts and Interim Measures on the Administration of Use of Receipts on Donation to Public Welfare Projects, conduct a strict review and verification of the application materials submitted by public welfare organizations, approve the applications in conformity with the Administration of Donation Receipts for Public Welfare Projects, handle the Financial Instrument Application (Purchase) Certificate, and issue donation receipts.

Whenever reissuing the donation receipts of public welfare projects, public welfare organizations shall show the Financial Instrument Application (Purchase) Certificate and submit any existing invoices for donations to public welfare projects, including the number of copies, starting and ending number, number of used copies, number of cancelled copies, charging amount, and instrument stubs. The financial department shall, after verifying and approving the foregoing content, check and cancel the instrument stub and continue to issue the invoice accordingly.

2.4 Specific Calculation of the Tax Benefits Enjoyed by Enterprises and Individuals After Donation

(1) Calculation of the Tax Benefits Enjoyed by Enterprises for Donation

A company donated to a public welfare foundation in May 2017 and the donation was to be used for supporting the disabled; said foundation obtained pre-tax deduction qualifications in 2017 and issued a donation instrument to a company. The company is a general taxpayer and its accounting profit in 2017 was RMB 10 million without any other tax adjustment. Therefore, the company’s taxable income before the deduction of the donation in 2017 was RMB 10 million + the amount of the donation (taxable income = total annual income – tax free income – tax exempted income – various deductions – prior year deficiency).

The RMB 800,000 not deducted may be deducted from the taxable income in 2019, 2020, and 2021.

b. A Company Donated RMB 1,000,000

A company’s public welfare donation before deducting tax in 2017 equaled 10,000,000 × 12% = RMB 1,200,000. The company’s public welfare donation in 2017 was RMB 1,000,000, less than RMB 1,200,000. Therefore, the total amount of donation could be deducted. A company’s enterprise income tax payable in 2017 = RMB 1,000,000 × 25% = RMB 2,500,000.

(2) Calculation of the Tax Benefits Enjoyed by Individuals for Donation

Mr. Wang donated to a public welfare foundation in March 2017 supporting the disabled. The foundation obtained pre-tax deduction qualifications in 2017 and issued the donation instrument to Mr. Wang. Mr. Wang’s salary in March 2017 (after paying the social insurance) was RMB 12,000 with revenue from writing reaching RMB 3,000.

Mr. Wang’s income tax payable for his salary before donation should = (12000-3500) × 25%-1005 = RMB 1,120, while the income tax payable for the revenue from writing should = 3000 × (1-20%) × 20% × (1-30%) = RMB 336.

a. Mr. Wang Donated RMB 2,000 From His Salary

The deduction limit for salary income tax should be (12000-3500) × 30% = RMB 2,550; Mr. Wang donated RMB 2,000 less than the deduction limit for income tax; therefore, the donation should be deducted.

The deduction limit for salary income tax should = (12000-3500) × 30% = RMB 2,550; Mr. Wang donated RMB 4,000, more than the deduction limit; therefore, only RMB 2,550 can be deducted, and the remaining RMB 1,450 may not be deducted from the income tax payable for revenue from writing, nor used for deducting the income tax payable for his salary in any month other than March 2017 (prior to February 2017 and subsequent to April 2017).

The deduction limit for income tax regarding revenue from writing (and related sources of income) should be 3000 × (1-20%) = RMB 720; Mr. Wang donated RMB 2,000, more than the deduction limit; therefore, only RMB 720 can be deducted. The remaining RMB 1,280 may not be carried forward to any other taxable income such as his salary, deducted from the taxable income for the subsequent tax declaring period, or deducted retrospectively from the taxable income of the previous tax period.

Prior to the promulgation of the Charity Law, there was no law on the supervision and administration of social organizations in China. The Civil Affairs Departments only had three regulations and some departmental and local regulations to supervise and administrate social organizations. Although subsequent laws didn’t generate negative impact, in the sense of disrupting such authorities from carrying out their supervisory and administrative duties competently, they still required updating. There are two issues. First, a poor legal basis for enforcement led to an absence of supervision. Second, local governments have different attitudes towards the supervision of social organizations. Moreover, their approach to supervision affected each industry differently, even if they are located within the same administrative area, thereby causing an imbalance in the way social organizations have developed.

Article 6 and Chapter 10 of the Charity Law confirm that Civil Affairs Departments are the authority governing charity work. They define the rights and obligations of charitable organizations for purposes of law enforcement, as well as supervise based on territory (territoriality principle) and the “combination of supervisory units and relevant departments”.

The territoriality principle states that Civil Affairs Departments shall supervise charity activities within their jurisdictions, as well as supervise the charitable organizations registered therein[13].

The “combination of supervisory units and relevant departments” is a supervisory approach that involves multiple areas, industries and functional departments. Its complexity requires the supervision structure to include not only the Civil Affairs Department, but also other functional departments for the implementation of the Charity Law. For instance, the taxation authority shall make investigations and punish any charitable organization that obtained tax benefits by falsification, whereas the trust supervision and administration agency shall supervise and monitor charitable trusts for compliance.

1.2 The Charity Law Refined Existing Regulations on the Administrative Supervision of Social Organizations

The Charity Law has not only normalized information disclosure, strengthened the internal governance of charitable organizations, and regulated property administration and the operation of charitable organizations, but also constructed supervisory systems for administration, industrial self-governance and social oversight. The most progress has been made in the area of administrative supervision. Chapter 10 of the Charity Law defines the duties of supervision departments in charge of overseeing charity activities: “Civil Affairs Departments of the people’s government at the county level or above shall carry out the management and supervision of charitable activities and provide guidance and supervision to charity industry organizations.” This is the general provision concerning the duties of Civil Affairs Departments as well as the specific regulation concerning their operational procedures.

The Charity Law gives Civil Affairs Departments the right to hold accountable charitable organizations suspected of violating the provisions of the Law[14]. These rights include:

Carrying out inspections of charitable organizations’ domiciles or activity sites;

Requesting clarification from charitable organizations and access to relevant materials;

Investigating work units and individuals involved in the supervision and management of charitable organizations;

Inquiring into the financial accounts of charitable organizations with the approval of the people’s government;

Carrying out any other measures provided for by laws and administrative regulations.

Moreover, the Charity Law also grants Civil Affairs Departments the ability to examine and investigate charitable organizations. Article 94 of the Charity Law states that: “Where the Civil Affairs Departments of the people’s government at or above the county level undertake an investigation of a charitable organization or related work unit and individuals, there shall be two or more inspectors or investigators and they shall produce legitimate certificates and inspection or investigation notices.”

The Charity Law provides clarity on relevant legal liabilities. For example, to punish an organization means to give warning or impose deadlines for operational or ethical amendments. If such warnings are not heeded or such amendments are not made, Civil Affairs Departments reserve the right to require the closing down of an organization and the revocation of their registration certificate. If charitable organizations are found to have unlawful gains, such gains will be confiscated and those involved fined between RMB 20,000 and 200,000. Administrative punishments include warnings, property confiscation, and the restriction of operational capacity. The Charity Law provides a much needed update to existing laws on the subject of administrative punishment.

Below is a detailing of each administrative punishment outlined in the Charity Law.

Industry organization refers to a private and non-profit social group organized by citizens, legal persons, or any other organization. It is based on the common benefit of those involved.

Article 19 of the Charity Law states that charitable organizations may legally establish industry organizations. Industry organizations reflect the needs of a profession, promote professional exchange, strengthen professional self-governance, raise the credibility of the charity sector and promote the development of charitable causes. At the same time, Article 96 states that, “charity industry organizations shall establish and improve the charitable industry standards and strengthen the self-governance of charitable industry.”

An industry organization is a non-governmental social group with independent and autonomous management, but which is usually linked to a charitable organization. Such organizations serve as a bridge between charitable organizations and governments, coordinating and promoting their cooperation. They also specify industrial standards and strategies for effective self-governance.

An Internet search yielded no more than 40 industry organizations across China. Among these, the China-Charity Alliance, Shenzhen Charity Alliance, Shaanxi Charity Alliance, Chengdu Public-welfare Charity Alliance and Guangzhou Public-welfare Charity Alliance are the most influential. In short, this sector is just beginning to develop.

1.4 Credit System Construction and Credit Information Disclosure

The Charity Law emphasizes that Civil Affairs Departments are liable for recording the credits of charitable organizations and their responsible persons and setting up credit recording systems and norms.

Another responsibility of Civil Affairs Departments is the disclosing of credit records to the public for supervision. Civil Affairs Departments may also record credit for use in social supervision.

Finally, they may cooperate with third-party professional assessment agencies to set up assessment mechanisms. This is to supplement the current assessment system.

In January 2018, the Measures on Administration of Credit Information of Social Organizations was released requiring that the nation’s credit information registration authority compile and make public lists for organizations conducting abnormal operations, failing to perform their requisite duties, and breaking the law. This is to strengthen the supervision of social organization’s credit information.

The Ministry of Civil Affairs imposed administrative punishment upon a particular social organization for three months starting from February 2018. The punishment required that they cease operations, based on that they were found to be incompliant and flagged on one of the lists described above. Based on the Measures on Administration, the registration authority of social organizations may require relevant departments to take the following measures on punishment:

List the organization needing extra supervision;

Withhold subsidies;

Remove ability to purchase services from these social organizations;

Withhold public recognition;

Exemplify them as a warning to others;

Carry out the punishment measures in the signed joint punishment memorandum.

1.5 Social Supervision

Charitable activities involve all aspects of society, including donors, charitable organizations, volunteers, and beneficiaries. Charitable activities and organizations, including the public credit of charitable trusts, are related to the development of the charity industry. Thus, social supervision has become an essential part of the construction of the supervision system[15].

There are three aspects to the regulations on social supervision in the Charity Law[16]:

Encourage units and individuals. If a work unit or an individual discovers that a charitable organization or trustee has broken the law, they may complain or report their concern to other departments or to a charity industry organization.

Set up a reporting and compliance mechanism. If a work unit or an individual discovers that a charitable organization or trustee has broken the law, they may complain or report their concern to the Civil Affairs Department, other relevant departments or to a charity industry organization. By way of such a mechanism, a link may be drawn between administrative supervision, social supervision, and self-governance.

Leverage the role of the media and public opinion in supervision. The public may expose fraudulent behavior and help bring the perpetrators to justice by way of news articles, blogging, forum discussions, and social media.

1.6 Liquidation of Charitable Organizations

The conditions and procedures for the termination of a fund and the disposal of property thereafter is spelled out in the Regulations on Funds. Different from traditional companies, social organizations are required to use the sampling text provided by the government at the time of incorporation. They also mustn’t have autonomy concerning the terms and conditions of the Articles of Association. Based on the sampling text of the Articles of Association released by the Ministry of Civil Affairs, the termination of a foundation shall be approved by the board of directors through voting. A foundation may be terminated in any of the following three circumstances: (1) The purpose is achieved; (2) The foundation is unable to continue working for the public welfare; and (3) The foundation is split up or merged. Promoters may add other circumstances as needed in the Articles of Association. It is more or less the same for private non-enterprise units and social groups. The termination of a private non-enterprise unit requires approval from the board of directors, whereas the termination of a social group requires a resolution passed by a member meeting.

Article 18 of the Charity Law has improved the exit mechanism for social organizations. It stipulates that the decision-making body of a charitable organization shall establish a team for liquidation within 30 days, starting from the date when the circumstances for termination emerged. If the organization does not establish such a team or if the team does not fulfill its duties, the Civil Affairs Department may apply to a people’s court to form a team out of the available personnel.

Article 17 of the Charity Law, compared with the sampling text, adds two circumstances that would warrant the termination of a charitable organization. One is the failure of an organization to engage in charitable activities for two consecutive years; the other is an organization being deregistered or having its registration certificate withdrawn.

Regarding the first circumstance, there is a similar provision in the Legal Person Law of Japan, which states that termination can occur if a corporate legal person remains dormant too long. It is required to report to the registry within two months. Failure to do so will result in the organization dissolving.

Concerning the second circumstance, a charitable organization that has violated laws or administrative regulations, and which has been subsequently deregistered or had its certificate withdrawn, shall be terminated. In accordance with Article 103, fraudulent claims for tax benefits shall be dealt with and prosecuted by taxation agencies. In serious cases, the Civil Affairs Departments shall legally revoke an organization’s registration certificate and make a public announcement.

There is an important difference between an organization’s registration being revoked and its registration certificate being withdrawn. Having a registration certificate withdrawn is a kind of administrative punishment. Article 8 of the Law on Administrative Penalty stipulates the types of administrative penalties: disciplinary warnings, fines, confiscation of illegal gains, confiscation of unlawful property, suspension of business operations, temporary suspension or rescission of permits or licenses, administrative detention, among others. When a registration certificate is withdrawn, the organization’s license is rescinded.

According to Article 69 of the Law on Administrative Permissions, the administrative organ which decides administrative permissions may also, based on the request of an interested person or by using its own discretion, revoke them. There are five situations where such revocation may occur: (1) When staff members abuse their power or neglect their duties; (2) When the decision to approve permissions disregards statutory functions and powers; (3) When statutory procedures are contravened; (4) When the applicant for permissions proves not to be qualified and thus fails to meet the statutory requirements; and (5) Other cases where administrative permissions may be revoked. If a person obtains administrative permissions by means of deception or bribery, it shall be revoked. Thus, the deregistration of a charitable organization happens when the administrative organ revokes or cancels the administrative permissions as provided in the Law on Administrative Permissions.

Based on existing laws and regulations, the circumstances by which a social organization’s registration certificate may be revoked[17] include:

Circumstances to Revoke a Registration Certificate

Applicable social Organizations

(1) Failure to conduct activities in accordance with the purpose and scope of public welfare activities provided for in the Articles of Association;

(4) Failure to fulfill the required expenditure amount for public benefit work;

Foundations

(5) Failure to take an annual examination or failure to qualify;

Foundations

(6) Failure to disclose any information, or the disclosure of fraudulent information;

Foundations

(7) Alter or lease/lend the registration certificate or alter or lease/lend the seal;

Private non-enterprise units and social groups

(8) Refuse or fail to be supervised;

Private non-enterprise units and social groups

(9) Illegally incorporate or set up branches;

Private non-enterprise units and social groups

(10) Engage in for-profit business activities;

Private non-enterprise units and social groups

(11) Embezzle, privately divide or appropriate institutional assets;

Private non-enterprise units and social groups

(12) Charge for expenses, raise funds, or accept and use donation and funds against relevant regulations.

Private non-enterprise units and social groups

2. Practical Guide

This section shall sort out the provisions in the Charity Law regarding administrative punishments. The tables are divided into the chapter and article, specific violations, subjects liable for legal liabilities, relevant legal provisions, and administrative punishments for violations.

Chapter & Article

Specific Violations

Subjects Liable for Legal Liabilities

Relevant Legal Provisions

Administrative Punishment for Violations

Regulate the internal governance of charitable organizations

Failure to carry out the activities subject to the charity’s purpose.

Charitable organizations

Article 98 & 100 of the Charity Law

The Civil Affairs Department shall impose deadlines for amendments; upon a failure to make amendments by the deadline, the Civil Affairs Department shall revoke registration certificates and make a public announcement;

If charitable organizations have unlawful gains, the Civil Affairs Department shall confiscate them and the directors and other personnel who are directly in charge shall be fined between RMB 20,000 and 200,000.

Accept donations in a way that violates laws and regulations or social morality; or violate laws concerning the treatment of beneficiaries

Article 98, 100 & 15 of the Charity Law

Engaging in or sponsoring activities that endanger state security or public interests

Article 104 & 15 of the Charity Law

It shall be investigated and dealt with by the relevant authorities. The Civil Affairs Department shall revoke the organization’s registration certificate and make a public announcement.

Loss of charitable property by violating provisions on affiliated transactions in the Charity Law

Article 99 & 100 of the Charity Law

The Civil Affairs Department shall give warning and impose deadlines for amendments; upon a failure to make amendments by the deadline, a deadline to cease operations and make corrections shall be imposed; if within a year of disposition a violation occurs again, or if there are other serious situations, the Civil Affairs Department shall revoke the registration certificate and make a public announcement.

If charitable organizations have unlawful gains, they shall be confiscated and the directors and other personnel who are directly in charge shall be fined between RMB 20,000 and 200,000.

Conducting public fund-raising by organizations and individuals without public fundraising qualifications;

Charitable organizations or the other organizations or individuals

Article 101 & 23 of the Charity Law

The Civil Affairs Department shall give warnings and order cessation of fund-raising activities; unlawfully solicited assts will be returned to the donor, and where there is difficulty in returning them, they shall be seized and transferred to other charitable organizations; a fine may also be imposed between RMB 20,000 and 200,000.

Using false information or other methods to trick or coax fund-raising targets into making donations

Charitable organizations

Article 101 & 31 of the Charity Law

Overtly or covertly engaging in the apportionment of units or individuals

Article 101 & 32 of the Charity Law

Causing obstruction to the public order, corporate production or the lives of residents

Article 101 & 23 of the Charity Law

Failure to file the charitable plan

Charitable organizations

Article 99, 100 & 24 of the Charity Law

The Civil Affairs Department shall give warning and impose deadlines for amendments; upon a failure to make amendments by the deadline, a deadline to cease operations and make corrections shall be imposed; if within a year of disposition, a violation occurs again, or if there are other serious situations, the Civil Affairs Department shall revoke the registration certificate and make a public announcement.

If charitable organizations have unlawful gains, they shall be confiscated and the directors and other personnel who are directly in charge shall be fined between RMB 20,000 and 200,000.

Unauthorized change in the use of donated property

Article 99, 100 & 39 of the Charity Law

Charitable fund-raising

Unauthorized change in the use of donated property

Article 102, 38 & 42 of the Charity Law

Failure to issue donors public interest donation receipts, or failure to promptly and actively giving feedback to donors

Article 102, 38 & 42 of the Charity Law

The Civil Affairs Department may issue warnings and order amendments; if such amendments are not made, the organization may need to cease activities.

Charitable trust

The trust’s property and proceeds are being used for non-charitable purposes

If charitable organizations have unlawful gains, it shall be confiscated and the directors and other personnel who are directly in charge shall be fined between RMB 20,000 and 200,000.

The operation and financial status of the trust are not reported to the Civil Affairs Department or otherwise publicly disclosed

Article 105 of the Charity Law

Charitable properties

Investing property that shouldn’t be used for investment purposes

Charitable organizations

Article 99, 100 & 54 of the Charity Law

The Civil Affairs Department shall give warning and impose deadlines for amendments; upon a failure to make amendments by the deadline, a deadline to cease operations and make corrections shall be imposed; if within a year of disposition, a violation occurs again, or if there are other serious situations, the Civil Affairs Department shall revoke the registration certificate and make a public announcement.

If charitable organizations have unlawful gains, they shall be confiscated and the directors and other personnel who are directly in charge shall be fined between RMB 20,000 and 200,000.

Violating the annual expenditure or management cost amounts for charitable activities stipulated in Article 60 of the Charity Law

The Civil Affairs Department shall impose deadlines for amendments; upon a failure to make amendments by the deadline, an organization’s registration certificate will be revoked and a public announcement made;

If charitable organizations have unlawful gains, they shall be confiscated and the directors and other personnel who are directly in charge fined between RMB 20,000 and 200,000.

Charitable services

Failure to issue proof of volunteer service records

Charitable organizations

Article 102 & 65 of the Charity Law

The Civil Affairs Department may give warnings and order amendments; if such amendments are not made, the organization may need to cease activities.

Leaking private information about donors, volunteers or beneficiaries

Article 99 & 100 of the Charity Law

The Civil Affairs Department shall give warning and impose deadlines for amendments; upon a failure to make amendments by the deadline, a deadline to cease operations and make corrections shall be imposed; if within a year of disposition, a violation occurs again, or if there are other serious situations, the Civil Affairs Department shall revoke the registration certificate and make a public announcement.

If charitable organizations have unlawful gains, they shall be confiscated and the directors and other personnel who are directly in charge shall be fined between RMB 20,000 and 200,000.

Information disclosure

Not producing and delivering annual work reports or financial reports

Charitable organizations

Article 99, 100 & 13 of the Charity Law

Not carrying out information disclosure obligations

Article 99, 100 & 69~75 of the Charity Law

Leaking private information about donors, volunteers, or beneficiaries, as well as the names, titles, addresses and contact methods for donors and principals of charitable trustees who do not consent to it being disclosed

Article 99, 100 & 76 of the Charity Law

Promotion measures

Fraudulent claims for tax benefits

Charitable organizations

Article 103 of the Charity Law

It shall be dealt with and prosecuted by taxation agencies. In serious cases, the Civil Affairs Department shall revoke its registration certificate and make a public announcement

Others

Disclosing state secrets or commercial secrets

Charitable organizations

Article 99 & 100 of the Charity Law

The organization shall be punished in accordance with relevant laws. If within a year of disposition a violation occurs again, or if there are other serious situations, the organization’s registration certificate shall be revoked and a public announcement made.

If charitable organizations have unlawful gains, they shall be confiscated and the directors and other personnel who are directly in charge shall be fined between RMB 20,000 and 200,000.

Illegally gain assets in the name of charity or disguised as charitable organizations

Natural person, legal person or other organizations

Article 107 of the Charity Law, Law of Public Security Administration, and Criminal Law

The public security authorities shall make investigation and impose punishment

Violations of the provisions of this law constitute a public security administration violation

Natural person, legal person or other organizations

Article 109 of the Charity Law, Law of Public Security Administration, and Criminal Law

The public security departments shall give public security administrative sanctions in accordance with the law; if a crime is committed, criminal charges shall be pursued.

Failure to fulfil their verification duties stipulated in Article 27 of the Charity Law

Radio broadcasters, television stations, newspapers and journals, and network service providers or telecommunications operators

Article 101 & 27 of the Charity Law

Their supervisory departments shall give a warning and order deadlines for amendment; upon a failure to make amendments by the deadline, a notice of criticism shall be issued and circulated.

[1]Article 84 of Regulations for the Implementation of the Enterprise Income Tax Law, Article 1 of No. 13 (2018) of Finance and Tax

[8]Article 5 of No. 45 (2010) of Finance and Tax, among these, General Payment on Non-tax Income refers to the payment instrument issued to the taxpayer by the public welfare social organization that carries out the reform on the systems of government for non-taxable income payment and collection by performing the governmental functions while collecting or charging non-taxable income.

[9]Reply by State Administration of Taxation on Application for Refunding Individual Income Tax Paid after Individual Donation (Letter of State Taxation [2014] No. 865).

[10]Portal website of Ministry of Civil Affairs: Important Measures on Solving “Last ‘Last Mile’ Issue for the Social Organizations to Receive Donation- Interpretation to Circular of Ministry of Finance and Ministry of Civil Affairs on Further Clarifying Relevant Issues on Public Welfare Social Organizations Applying for Donation Receipts on Public Welfare Undertakings” http://www.mca.gov.cn/article/zwgk/mzyw/201603/20160300880805.shtml.

[12] Corresponding to No. 13 (2018) of Finance and Tax, they are materials in (d), (f) (g), and (e), the newly added materials provided in No. 13 (2018) of Finance and Tax.

[13]The people’s government above the county level refers to the people’s government of province, autonomous region, municipality directly under the Central Government, autonomous prefecture, city, county and autonomous county with districts, and city without districts and district directly under city.

[17]The original text of Regulations on Fund Administration, Regulations on Administration of Social Groups and Interim Regulations on Registration Administration of Private Non-enterprise Units is “registration revocation”; however the author believes that the legislative intention should be revocation of registration certificate in combination with the Charity Law and Law on Administrative Permission.

[18]It might violate charitable fund raising and charitable donation; thus it is listed in two items.

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